Property prices dropped 0.7% in July and are now down 2.6% on a year ago - the sharpest annual decline since August 2009.
The average home is now worth £164,389 compared to £163,822 in December 2011.
Peter Rollings, CEO of estate agent Marsh & Parsons, said: “National house prices are mirroring the plight of the economy, and it is only a shortage of properties available that is preventing larger falls in many parts of the country.
“Mortgage lending figures are still heading south, and lenders’ conservatism is being felt most keenly by first-time buyers. This is keeping the lower tiers of the housing market sedated, removing the bottom-up impetus needed to drive a recovery in prices outside of London.
“It’s not yet clear whether the funding for lending scheme will serve as a much needed shot of adrenaline for the housing market. The prospect of the scheme has already triggered a wave of incredibly cheap rates for the equity rich, and those with substantial deposits are reaping the benefit.
“If we see these cheaper rates applied to higher loan to value mortgages following the scheme’s launch, we could see a bounce in first-time buyer figures, buoying sales activity in the second half of the year.”
Ashley Alexander, managing director, estate agent review website MeetMyAgent.co.uk, added: "The summer of 2012 will be remembered for being a summer of sporting — rather than property — activity. The property market has gone direct to a repechage.
"The property market seems to be mirroring the economy — there is a far closer correlation between the two than there has been in the past.
"There is no reason to believe the latest round of quantitative easing will have any effect on the property market although the hope is that it will be given a boost through the Funding for Lending scheme, which starts today.
"All eyes are on the banks and whether this latest initiative will finally get them to lend.
"The hope is that the Funding for Lending scheme, and the end of the Olympics, will see a surge in activity in the Autumn and inject some much-needed momentum into the market.
"There are already signs of an improvement in mortgage rates, but we'll have to wait and see whether this will extend to higher LTVs.
"Even if there is a greater availability of credit, the question is whether there is the demand for this credit. Consumers remain very cautious."
